I recently had a problem where Vista refused to bitlocker D: Hopefully the information below will save someone else the hours it took me to fix....
It kept reporting that there was not enough free space on the drive, however after I got down to 70GB on a 296GB partition that was fully defragmented I took drastic action and formatted the drive.
Vista still complained about not enough free space. What ??
To cut a long story short I remembered seeing this before and that it was related to a file cache flush error reported in the event log. Basically, bitlocker attempts to do a flush before starting to encrypt (sensible), but the driver for the storage controller (in this case a JMicro JMB36X in disk mirror mode) does not have a cache, and does not support the flush function. Rather than recognise that a flush is not necessary bitlocker just throws an error (any error - manage-bde gives a different error to the gui)
This can be fixed by opening device manager / disk drives / properties on the drive you are trying to encrypt, selecting policies and then "Enable advanced performance". Vista then seems to put a write-back cache on the drive, and thus when bitlocker performs a flush on the cache vista (and not the driver) accepts the flush without error and encryption starts.